ZURICH (AP) -- UBS AG, the Swiss bank hit hard by the financial crisis and a U.S. legal probe into its American clients' offshore accounts, reported Tuesday a first-quarter net loss of 1.98 billion Swiss francs ($1.73 billion) and said it expects loan losses to keep rising.

UBS, which replaced its CEO, chairman and several other senior officials after record losses of some 21 billion francs last year, also said customer withdrawals continued in the first quarter.

The quarterly loss compared with a 11.62 billion francs shortfall a year earlier, and was cautiously welcomed by investors and analysts as a sign that the new management is taking necessary steps to turn the business around.

The Swiss bank, which has already paid $780 million in fines and restitutions to settle allegations it helped U.S. customers evade taxes, said its investment banking unit recorded a pretax loss of 3.16 billion francs.

Its wealth management and Swiss bank unit saw a pretax profit of 1.08 billion francs, with the wealth management Americas unit recorded a loss of 35 million francs.

Global asset management made a pretax loss of 59 million francs, blamed on charges related to the sale of its Brazilian unit UBS Pactual, while the corporate center recorded a profit of 621 million francs, attributed to the purchase of toxic assets by the Swiss National Bank.

Overall, the company said its total assets fell by 153.49 billion francs to 1.86 trillion francs. It was recently overtaken as Switzerland's largest bank by market capitalization by its archrival Credit Suisse, which last month reported a 2 billion francs first-quarter net profit.

"The strong influence that government policy has on the market environment was clearly demonstrated in the first quarter as investors became less risk averse," the bank said.

"However, the real economy has continued to deteriorate, and this is expected to have negative implications for credit-related provisioning in coming quarters."

Cubillas Ding, an analyst at financial research firm Celent, said he expects conditions at UBS to worsen before they get better, pointing to further markdowns of mortgage assets, tax lawsuits and restructuring efforts.

"These are bitter pills that need to be swallowed in order to stop the internal hemorrhaging from further eroding performance in other parts of the firm," he said.

"The swifter the measures, the better -- prolonged uncertainties almost always leave firms weaker from a competitive standpoint, with heightened risks of employee, client and investor attrition."

UBS's tier 1 ratio -- which indicates a bank's core equity compared to its risk-weighted assets -- fell to 10.5 percent from 11 percent in the fourth quarter of last year. The bank blamed the drop partly on a re-evaluation of its 2008 figures, which saw it increase its net loss attributable to shareholders by a further 405 million francs.